Krugman In Wonderland

Today's announcement that Paul Krugman won the Nobel Prize in economics, although not earth shattering, indicates that outright political partisanship is not a deterrent to winning. This is not as tragic a moment in western civilization as the sacking of Constantinople in 1453 or the Bolshevik Revolution of 1917, but it suffices as one of those sad moments we will regret over time.

The committee that chose Krugman cited his "trade" theories that once made him famous for actually doing economics. (Krugman contends that nations can create comparative advantages by subsidizing certain industries, something the ancients once called Mercantilism.) However, Krugman has become a well-known public intellectual not because of his work on trade, but because of his twice-weekly op-ed column in TheNew York Times, where outright partisanship is substituted for economic analysis.

Paul Krugman is an unabashed liberal, and there is no crime in an economist having such persuasions. For that matter, many economists have a bit of that streak, too. Furthermore, many of us are in agreement that some of the economic policies of the Bush administration have been bad, if not downright disastrous.

However, the agreements end where Krugman begins to view U.S. economic history from a distorted lens, one in which all administrations run by Democrats are Good and Virtuous, and all Republican administrations are governed by Beelzebub himself. For example, Krugman has laid literally all of the recent financial meltdowns on free markets and deregulation, which he claims were the products of right-wing ideology and compliant Republican administrations.

This is a curious view of history. Until reading Krugman, I had no idea that Jimmy Carter and his economic guru, Alfred Kahn, were conservative Republicans. Carter and Kahn allegedly thought of themselves as liberal Democrats, and I even remember seeing Carter running for president on the Democratic ticket.

Yes, many of the major deregulation efforts came through the Carter administration, although Krugman apparently denies all of that. Carter's administration deregulated airlines and pushed through huge banking reforms as the highly regulated New Deal financial cartel imploded amidst inflation and the inability of that system to be able to finance many of the upcoming high-tech industries.

The Carter administration also began the deregulation of the price control system for oil and gasoline and set into motion the deregulation apparatus for trucking, railroads and telecommunications. In fact, Ronald Reagan received the endorsement of the Teamsters Union only after he promised to delay trucking deregulation. I also remember hearing Lester Thurow at a lecture in 1984 calling for massive deregulation of financial services and the end to anti-trust law and an end to the Glass-Steagall Act. Thurow, Kahn and Carter were not ideological conservatives, and they certainly were not Republicans, but Krugman simply airbrushes that fact to give us his own wonderland.

In Krugman's world, ideological right-wingers took a meat axe to the carefully planned, stable New Deal economic structures of finance, telecommunications, transportation and manufacturing and created an unstable mess in which greed overruled good sense. Going even farther, Krugman has called for a reinstatement of the New Deal or at least another set of legislative initiatives like the New Deal.

Given that the first New Deal ensured double-digit unemployment until the end of 1941, one would think competent economists would not support laws that restrict output, criminalize entrepreneurship, and keep unemployment levels in the stratosphere. It would seem that an economic recovery would require increasing output and employment, but who are we economists on the outside of the Nobel circle to question the wisdom of a Nobel laureate?

As for the current economic turmoil in financial markets, Krugman offers outright socialism as the cure but also continues to peddle the snake oil that the Bush administration is beholden to free-market ideology. Praising the near-nationalization of British banks by the government, Krugman writes:

"It's hard to avoid the sense that Mr. Paulson's initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as 'private good, public bad,' which must have made it hard to face up to the need for partial government ownership of the financial sector."

Remember, Krugman is describing a government that is looking to take equity positions in banks and businesses, and whose central bank, the Federal Reserve System, pretty much owns
AIG
. And there is that little $700 billion bond issue to buy worthless securities (something Krugman endorsed).

Thus, Krugman believes the problem is that the Bush administration is not socialist enough, which makes it ideologically "free market." If Obama is elected and Krugman receives a high position in his administration, we shall see if Krugman becomes the first commissar who makes socialism work. I'll be betting against him.

William L. Anderson is associate professor in the Department of Economics at Frostburg State University in Frostburg, Md.